Glossary

This is an order that is made in County Court permitting an individual to pay off a judgment debt which is less than £5,000 in affordable instalments. No insolvency practitioner is involved.

Administration/Administration Order (Company)

This is a process by which the directors of a company, its creditors or the holder of a qualifying floating charge place the company into administration by filing the requisite appropriate notices at court. Administration protects the company from its creditors whilst the Administrator prepares a proposal for the creditors.

Administrator

The licensed insolvency practitioner appointed to deal with the Administration of the company by either, the directors, creditors or holders of a qualifying floating charge.

Administrative Receiver

This is a licensed insolvency practitioner who has been appointed by the holder of a debenture to realise the company's assets on behalf of the debenture holder.

Administrative Receivership/Receivership

This is the process under which an insolvency practitioner is appointed as receiver by a debenture holder to realise the company's assets on its behalf. The realisation of the assets pay preferential creditors and the debenture holder’s debt. This process has become less common since September 2003 when the Enterprise Act 2002 came into force.

Authorised (Or Licensed) Insolvency Practitioner

This person (usually an accountant or solicitor) is authorised by the Department of Trade and Industry (DTI) or a recognised professional body to act as a Trustee in bankruptcy or as the Nominee or Supervisor of a Voluntary Arrangement.

Annulment

This is the cancellation of a bankruptcy order by the Court. The effect of it is that the bankruptcy never occurred.

Assets

Assets are anything that belongs to the debtor that may be used to pay their debts. In bankruptcy any asset that is part of the bankruptcy remains a bankruptcy asset, even after discharge, unless it is specifically excluded or dealt with.

Bankruptcy Order

This is the court order making an individual bankrupt.

Bankruptcy Petition

This is a written application made to Court by either a debtor or his creditors applying for an order to be made for the debtor to be made bankrupt.

Bankruptcy Restrictions Order Or Undertaking

This is a procedure whereby a bankrupt who has been dishonest or in some other way to blame for their bankruptcy may have a court order made against them, or will give an undertaking to the Secretary of State which will mean that certain bankruptcy restrictions continue to apply after discharge for a period of between two to fifteen years.

Bond

Insurance cover needed by a person who acts as an insolvency practitioner.

Charge

This is a security interest taken over the property of a company by one of its creditors to protect itself against non payment. Typical examples are a mortgage or a debenture.

Charging Order

This is an Order of Court that a creditor with a judgment debt can apply for and is registered against property in which the judgment debtor has in interest. This order places restrictions on the disposal of that property and it gives the creditor priority of payment over other creditors. Many orders require the payment of interest at the Court rate or above. The use of Charging Orders has increased by 460% since 2000.

Company Directors Disqualification Act 1986

An Act of Parliament which covers the disqualification of directors.

Composition

This is the agreement between a debtor and his creditors whereby the creditors agree to accept less than full payment in full satisfaction of their claim.

Contributory

Every person that is liable to contribute to the assets of a company if it is wound up. In most cases this means the shareholders who have not paid for their shares in full.

Compulsory Liquidation

This occurs where a petition is made to the court to wind up the company. Such petitions are normally presented by creditors.

Creditor

This is an individual, company or organisation that is owed money by an individual.

Creditors Voluntary Liquidation

This is a process by which the directors of a company convene a meeting of shareholders and then creditors to place the company into insolvent liquidation. This is done with the assistance of a licensed insolvency practitioner who is appointed by the directors.

Creditors Meeting

A meeting held at which the creditors can put forward their views and vote on resolutions put before them.

CVA (Company Voluntary Arrangement)

An agreement put forward by the company to its creditors through a licensed insolvency practitioner to agree a full and final settlement with the company's creditors. This is done either by making a monthly contribution over a period of time [3 to 5 years] or a one off payment to creditors in settlement of their claims.

D Report

All liquidators, administrators and administrative receivers are required to submit a report to the Department of Trade and Industry on the conduct of all directors and shadow directors of a company over which they are appointed. The Department of Trade and Industry will, where the circumstances are appropriate, carry out an investigation into the affairs of the directors and may chose to commence disqualification proceedings against those directors where they believe that they are unfit to act as company directors.

Debenture / Mortgage Debenture

A type of security, usually held by banks which includes a floating charge over the company's assets. Depending on when it was dated it gives a right to appoint administrative receivers or an administrator over the company. It is a term usually used in relation to loans which are secured by charges, including floating charges, over a company’s assets.

Debt Consolidation

This usually refers to the process of obtaining a loan to pay off existing debt. The loan could be unsecured, secured or raised through re-mortgaging of property.

Debt Relief Order (D.R.O.)

This is a relatively new process introduced on the 6th April 2009 and is a simplified type of bankruptcy, which can be dealt with directly by the Official Receiver rather than having to go through court. It affords you protection from your creditors for one year after which your debts are wiped out.

To qualify for a D.R.O. you must have total debts of £15,000 or less, assets with a total value of no more than £300* (a car up to £1,000 is exempt) and a disposable income of no more than £50 per month.

* Pension funds are included as part of your assets - this is currently under review. Confirm if you are eligible.

Disqualification

This is a procedure whereby a person has a court order made against them or gives an undertaking to the Secretary of State which makes it an offence for that person to be involved in the management or directorship of a company for the period specified in the order (unless leave has been granted by the court).

Dividend

Any sum that is distributed to unsecured creditors in insolvency proceedings. All creditors receive the same percentage of the debt that they are owed.

Enterprise Act 2002

A piece of legislation which has brought about wide-ranging changes to bankruptcy and other insolvency procedures.

Extortionate Credit Transaction

An extortionate credit transaction is a transaction where credit is provided on terms that are exorbitant or grossly unfair when compared with the risk accepted by the creditor. Such a transaction may well be challenged by a Trustee in bankruptcy.

Fixed Charge

A fixed charge is a form of security granted over specific assets, preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a Receiver to realise the assets in the event of default. Examples would be charges over land or buildings, which cannot be sold without the chargeholder’s consent.

Floating charge

This is a charge held over the general assets of a company. The assets may change (such as stock) and the company can use the assets without the consent of the secured creditor until the charge becomes fixed ("crystallises"). Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a winding-up petition or as otherwise provided for in the document creating the charge.

Freehold Property

This is property in the form of land and/or buildings owned by an individual. This can be registered land (at the Land Registry) or unregistered.

Guarantee (of Payment)

This is a legal commitment by a third party to repay a debt if the original borrower fails to do so. It must be evidenced in writing for it to be enforceable.

Individual Voluntary Arrangement (IVA)

This is a statutory procedure covered by the Insolvency Act 1986, where an individual, who cannot repay their debts, comes to a formal arrangement with their creditors on how their debt will be repaid. Up to 75% of all unsecured debts can be written off (this is more likely to be 50-65%).

Insolvency

For an individual this is the state of not being able to pay one's debts as they fall due or having an excess of liabilities over assets.

For a company, section 123 of the Insolvency Act 1986 states that a company is "unable to pay its debts" (i.e. it is insolvent) when:

1. the company is unable to meet its debts as and when they fall due. This is commonly referred to as a "Cash Flow Insolvency"; or

the amount of the company's liabilities (including its actual and contingent liabilities) exceeds the value of its assets on a balance sheet basis. This is commonly referred to as a "Balance Sheet Insolvency".

2. Where a company is or is about to become insolvent its directors must act in the best interests of the company's creditors (as opposed to the company's shareholders) and there are certain corporate and personal consequences for those directors if they fail to do so.

Insolvency Act 1986

This is the primary legislation which governs insolvency law and practice.

Insolvency Practitioner (IP)

Under the Insolvency Act 1986, this is a person authorised by either, The Insolvency Practitioners Association, The Institute of Chartered Accountants, The Institute of Certified Accountants, The Law Society, or the Department of Trade. Only individuals who are licensed Insolvency Practitioners can act as liquidators, supervisors of voluntary arrangements, administrators, administrative receivers and trustees in bankruptcy.

Insolvency Rules

These are a set of rules for Insolvency Practitioners that provide the detailed working procedures.

Interim Order

This is an Order of Court that an individual proposing a voluntary arrangement may apply for. If granted it prevents any legal proceedings from being started or progressed against the individual whilst the order remains in force.

Judgement Debt

This is where the Court has agreed that a sum of money claimed in a court action is due to the applicant.

Leasehold Property

Property owned by one party but let to another under a formal deed (the lease) which entitles that other person to occupy the property.

Liquidation (winding up)

This applies to companies or partnerships. It involves the realisation and distribution of the assets and usually the closing down of the business. There are three types of liquidation - compulsory, creditors' voluntary and members' voluntary.

Liquidator

The Official Receiver or an Insolvency Practitioner appointed to administer the liquidation of a company or partnership.

Member (of a company)

A person who has agreed to be, and is registered as, a member, such as a shareholder of a limited company.

Nominee

This is an Insolvency Practitioner normally chosen by an individual to act in relation to their proposal for an Individual Voluntary Arrangement and who reports to the Court that the proposal conforms to the legislation and should be presented to the meeting of creditors. Once the creditors meeting has taken place and the IVA has been accepted by the creditors, the nominee function ceases and the role changes to that of Supervisor.

Office Holder

This is a qualified insolvency practitioner that has taken the post of Supervisor of a voluntary arrangement or Trustee in bankruptcy in a particular case.

Officer (of a company)

A director, manager or secretary of a company.

Official Receiver

A civil servant working for the Department of Trade and Industry who deals with the affairs of a company in liquidation, bankruptcies of companies and individuals.

Official Receiver's Office (O.R.)

The civil service body, a department of the DTI, whose responsibilities cover bankruptcies.

Onerous Property

The term onerous property in the context of a bankruptcy, applies to unprofitable contracts or to property that is not saleable or not easily saleable or that might give rise to a continuing liability. Such property can be disclaimed by a Trustee in bankruptcy.

Partnership Voluntary Arrangement/PVA

A formal voluntary arrangement for a partnership over the partnership assets. A licensed insolvency practitioner has to be appointed as the nominee/supervisor.

Petition

This is a formal written application to the court for relief or remedy.

Possession Order

This is an order made by the Court permitting a lender or landlord to take possession of a property and evict any person living in the property.

Preference

This is an antecedent transaction in the six month to two year period preceding a bankruptcy. It places a creditor or a person connected with the insolvent, in a better position than they would have been otherwise. A Trustee in bankruptcy may recover any sums which are found to be preferences.

Preferential Creditor

This is a creditor that has priority when funds are distributed by a Trustee in bankruptcy. Under the current legislation the most common preferential creditors are employees who are owed wages or holiday pay.

Proof of Debt

This is a document submitted in an insolvency to establish a creditor's claim. In bankruptcy or liquidation this is usually in the prescribed form but in voluntary arrangements can be informal (by a letter).

Proving

This is the process of lodging a proof of debt to make a claim in insolvency proceedings.

Provisional liquidator

OR/IP appointed to preserve a company's assets pending the hearing of a winding up petition.

Proxy Form

This is a form that can be completed by a creditor if they wish someone else (or the Chairperson) to represent them at a creditors' meeting and may contain specific voting instructions

Proxy holder

The person authorised, by completed Proxy Form, to attend a (creditors') meeting and vote on behalf of a creditor.

Public examination

When a company is being wound up or in bankruptcy proceedings, the Official Receiver may at any time apply to the court to question the company's director(s) or any other person who has taken part in the promotion, formation or management of the company or the bankrupt.

Realise

Realising an asset means selling it or disposing of it to raise money, for example to sell an insolvent's assets and obtain the proceeds.

Receiver

The commonly used name for an administrative receiver. The term can also mean a person appointed by the court or with the power to receive the rents and profits of property. Receivers who are not administrative receivers do not need to be Insolvency Practitioners.

Receivership

A company in administrative receivership is often said to be "in receivership".

Rescission

A procedure that cancels a winding-up order.

Release

The process by which the Official Receiver or an Insolvency Practitioner is discharged from the liabilities of office as trustee/liquidator or administrator.

Retention of Title (ROT)

Suppliers of goods, often have standard terms and conditions whereby they retain ownership/title of the goods they have supplied, until they have been paid for them.

Secretary of State

The Secretary of State for the Department of Trade and Industry

Secured Creditor

A creditor who has specific rights over some or all of a debtor's assets, a typical asset being a mortgaged property. They are paid first from the secured assets.

Security

This is a charge or mortgage taken out, over the assets of a borrower, by a lender, to secure the payment of a debt. If the debt is not paid, the lender has a right to take possession of and sell the charged assets.

Shadow director

A person who, without being formally appointed, gives instructions on which the directors of a company are accustomed to act.

Statement of Affairs

A document, which is completed by and sworn by a bankrupt, company officer or director(s) and states their assets and gives details of debts and creditors.

Statutory Demand

A legal notice, issued by a creditor, which requires the payment of a debt that exceeds £750 within a period of 21 days. The default of which can result in bankruptcy or liquidation proceedings being commenced without further notice.

Supervisor

The person appointed to supervise the implementation of the debtor's proposals for an IVA, CVA or PVA once approved by creditors.

Suspended Possession Order

The Court agrees to a possession order but also orders that the lender cannot evict the person living in the property for as long as that person keeps to an agreed payment schedule to clear the arrears and maintain future mortgage/rent payments.

Transaction At Undervalue

An antecedent transaction in the form of either a gift or a transaction in which the consideration received is significantly less than that given. In certain circumstances such a transaction can be challenged by an Administrator, a Liquidator or a Trustee in bankruptcy.

Trustee In Bankruptcy

The authorised insolvency practitioner appointed to deal with the estate of the bankrupt.

UNCITRAL

United Nations Commission on International Trade Law.

Unsecured Creditor

A creditor that does not hold security for their debt. unsecured creditors may also be preferential creditors.

Undischarged Bankrupt

Someone against whom a bankruptcy order has been made and who has not been discharged from bankruptcy.

Voluntary liquidation

A method of liquidation not involving the courts or the Official Receiver. There are 2 types of voluntary liquidation - members' voluntary liquidation for solvent companies and creditors' voluntary liquidation for insolvent companies.

Winding-Up Order

An order of the court for the compulsory winding up of a company or partnership. See compulsory winding up above.

Secured Debt

This is debt that has been secured against personal or business assets, such as a mortgage or debenture. Unsecured debts such as credit cards, personal loans and trade debts can be secured by way of a Charging Order.